Trez Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for its first year of operations follows.
Sales (80,000 units Af— $45 per unit) $ 3,600,000 Cost of goods sold Beginning inventory $ 0 Cost of goods manufactured (100,000 units Af— $25 per unit) 2,500,000 Cost of good available for sale 2,500,000 Ending inventory (20,000 Af— $25) 500,000 Cost of goods sold 2,000,000 Gross margin 1,600,000 Selling and administrative expenses 510,000 Net income $ 1,090,000
Selling and administrative expenses consist of $350,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.
b. The company’s product cost of $25 per unit is computed as follows.
Direct materials $ 5 per unit Direct labor $ 8 per unit Variable overhead $ 3 per unit Fixed overhead ($900,000 / 100,000 units) $ 9 per unit
Prepare an income statement for the company under variable costing.